White Paper Cautions Reliance on Near-term View of Hurricane Risk

May 10, 2006

AIR Worldwide Analysis Concludes That Significant Uncertainty AIR Worldwide Corporation (AIR) issued a white paper that reviews the current state of research on climatological impacts on hurricane activity and explains the approach used to create AIR’s near-term sensitivity catalog, which quantifies the influence of sea surface temperature (SST) forecasts on insured losses for the next five years.
The report, titled “Understanding Climatological Influences on Hurricane Activity: The AIR Near-term Catalog” confirms the correlation between elevated sea-surface temperatures and overall hurricane activity in the Atlantic basin, according to AIR experts.

Karen Clark, president and CEO of AIR Worldwide Corporation, says, “However, there is considerable uncertainty in the expected magnitude and time horizon of potentially elevated risk along the coastline and, most importantly, the impact on regional insured losses.”

The result of more than eight months of research by AIR’s scientists, in collaboration with Accurate Environmental Forecasting (AEF), is reflected in a near-term catalog of potential hurricane activity that will be released by AIR later this month. The research undertaken by AIR and AEF has been peer reviewed by Dr. Kerry Emanuel of MIT and Dr. Jim Elsner of Florida State University.

“AIR’s approach to estimating near-term (~5 year) hurricane rates, developed in conjunction with proprietary AEF and Climatek technology, includes the latest physical understanding of the causes of fluctuations in hurricane activity and incorporates a sound statistical model,” according to Dr. Elsner. Dr. Emanuel added that “the AIR technique is based on sound statistical analysis relating SST anomalies to regional risk from hurricanes.”

For the 2006 hurricane season, AIR will offer three stochastic catalogs for its U.S. hurricane model: the standard catalog, which is based on over 100 years of historical data and over 20 years of research and development; a near-term sensitivity catalog, which reflects recent research on the influence of SSTs on near-term (~5 year) hurricane activity; and a 2006 seasonal hurricane catalog that accounts for the influence of current climate signals on hurricane activity for the upcoming season.

“AIR believes that our standard U.S. hurricane model based on over 100 years of historical data and over 20 years of research and development is still the most credible model given the uncertainty arising from the sparse data available for projecting the next five years,” continued Clark. “Until scientists better understand the relationship between elevated sea-surface temperatures and landfalling hurricane activity, AIR encourages insurers to use the near-term catalog developed by AIR and AEF for sensitivity analyses and not as a replacement for AIR’s standard U.S. hurricane model.”

Source: AIR Worldwide Corporation

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